ICICI Bank Share Price: CLSA highlights key takeaways for investors to take advantage of

The key message was that the +95% collection rate banks indicated for Sep 2020 continued in Oct and trends look positive for Nov as well; this is providing management comfort that their 70-130 bps in Covid-19 provisions are adequate to cover the losses from the pandemic.

Retail disbursements are picking up across product segments and management expects retail loan growth to come back: Reuters

CLSA will be hosting 25+ bank and financial companies this week with the majority of the large banks present at forum today. The key message was that the +95% collection rate banks indicated for Sep 2020 continued in Oct and trends look positive for Nov as well; this is providing management comfort that their 70-130 bps in Covid-19 provisions are adequate to cover the losses from the pandemic. While there remain pockets of uncertainty, like SMEs and business owner asset quality, CLSA wait for more feedback over next few days as incremental commentary provides comfort in their view that Q2 FY21 will be a turning point for banks

ICICI Bank: collections holding up and comfortable on Covid-19 provisions:

ICICI Bank indicated collections are holding up as indicated during its Q2 FY21 call. It reiterated restructuring requests remain low for now and expects <1% of book to be restructured (corporate and SMEs). Management was comfortable with its Rs87bn (1.3% of loans) of Covid-19 provisions. Retail disbursements are picking up across product segments and management expects retail loan growth to come back to pre-Covid-19 levels in a few quarters.

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Corporate deleveraging continues and hence system level corporate growth will be a drag. No explicit ROE guidance was provided but given the improving granularity of balance sheet (Steadier and stronger into Covid-19) and the normalisation of credit costs as guided by management, it does not see any structural reason for ROEs not to improve to +15% and to match the return ratios of its best-in-class peers in the medium term. The bank has not heard anything regarding a holdco structure. Over time the bank could reduce its stake in insurance subsidiaries to <30% but it is unlikely to adopt an open architecture as they see no merit from a customer or bank standpoint.

ICICI Bank meeting takeaways:

ICICI Bank Growth momentum:

Retail loan growth: Disbursement trend is picking up and hence retail growth should come back to pre Covid-19 levels in a few quarters.

ICICI Bank Corporate loans:

Corporates are in deleveraging mode and hence loan growth will take some time to come back. There is low capex related demand and only some and very competitive working capital demand. The bank is working to develop certain corporate eco-systems.

ICICI Bank Overseas loan book contraction:

Current overseas book is down to 6-7% of the overall book and should further come down in next few qtrs. NIMs in the overseas book would be ~1% and domestic book is 3.5-4.0% and hence that shift is margin accretive.

ICICI Bank Liability customer acquisition:

The focus of the bank has been on liabilities over the last 5-7 years which has made it one of the lowest cost structures among top banks currently.

ICICI Bank Asset quality, collection trends and credit costs:

Collections:

The resolution levels seem to be holding up as the bank indicated in Q2 FY21 call (The bank had indicated in Q2 FY21 that overdue buckets in various segments were up only by 1%-4% of loans and collections continued to improve.

Restructuring:

Maintain a view that restructuring of corporate /SME would be 1% of overall loans of the bank. Current level of restructuring request for the banks is at Rs 20 bn of loans.

Reasons for higher slippages in 2Q in spite of the Supreme Court ruling:

Slippages were Rs 30 bn of slippages and Rs 14 bn of slippages which was not reported due to the Supreme Court verdict. The bank does not believe there was anything unusual in the slippages in Q2 FY21.

Provisioning:

The bank has a provisioning of Rs 87 bn (134 bps of loans) and is comfortable with the current level of provisioning for potential Covid-19 related NPAs and restructuring in second half of FY21.

What is aiding asset quality?

(1) Bureau score and income assessment has been done well by the banks

(2) Liability side cross-sell to good salaried customers.

Overall strategy and others:

Holding company structure:

No update from the regulator on holding company structure. The bank has been diluting stake in subsidiaries and in their general insurance business, their stake is down to <50%.

Insurance:

Over the medium term the bank intends to bring down its stake in insurance subsidiaries but they don’t intend to go open architecture even if their stake in subsidiaries come down.

ICICI Prudential AMC Listing:

No specific plans now but open to look at value accretion.

Current account regulations:

The bank’s assessment is that the regulation change will be neutral for ICICI bank with some give and takes.

Long term capital need:

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Once Covid-19 is done, all banks will need to evaluate what the right level of capital that a bank should hold. As of now the bank does not want to commit to a certain level of CET-1 level.

Yes Bank investment:

At an opportune time, the bank can monetise the investment.

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